A Change to the Taxability of Unemployment

If you collected unemployment last year, you’re certainly not alone. The unemployment rate in Massachusetts climbed as high as 17.4% in June of last year. With jobless benefits slated to end at the end of this week, Congress is on the cusp of passing yet another stimulus bill in an effort to provide some relief to those who are still out of work. The latest COVID-19 stimulus package has a price tag of nearly $2 trillion and has made it through the Senate with minor adjustments to the original bill passed by the House. It is expected to move back through the House for final approval and ultimately be signed into law by President Joe Biden by mid March.

This bill will provide unemployment benefits of $300 per week until September 6^th. It also exempts up to $10,200 in unemployment benefits received last year from taxable income. This means if you have filed your 2020 return and had unemployment income, you will want to amend your return to reflect a reduction in taxable income. If you have not filed and have unemployment, it is advisable that you delay your filing until this bill is passed.

 The bill also contains a third stimulus check of up to $1,400 per person (dependents included) although the income limits for eligibility are lower than previous packages. Those making under $75,000 (single), $112,500 (Head of Household) or $150,000 (married) will receive full payments. Taxpayers are disqualified at $80,000 (single), $120,000 (Head of Household) and $160,000 (married) with partial payments between these figures. Your adjusted gross income from your 2019 or 2020 tax returns will be used. Therefore, from a tax planning perspective, you may want to delay or accelerate your 2020 tax filing depending on where your AGI falls comparatively between 2019 and 2020 in order to maximize stimulus payment eligibility. Make this decision in conjunction with deciding whether or not to delay your filing due to the taxability change of unemployment.

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